Signs of Hope & Change

A wave of sanity and calm wash over the Greenwich real estate market as things begin to return to normal

By chris hodenfield

“Stable is the new up,” Eric Bjork says with a laugh, looking over a Greenwich housing market that seems, this year, to be righting itself at last. The year 2009 began with the market in free fall with prices dropping at least 25 percent of the 2006 highs. But, finally, says Bjork, vice president at Prudential Connecticut, something resembling order has returned. “In January, we did twice as much business as we did last January. That’s good, but it’s like saying the patient is out of the coma,” he says.

“It’s a whole different ball game from last year at this time,” says Realtor David Ogilvy. “Greenwich is always the last to feel the effects of the recession and the first to pull out.”

Each month this year has seen a steady improvement. However long it takes a wider recovery to happen, there is no question that many shifts have occurred in Greenwich’s housing market. Talk to enough people involved in the once-grand game and the refrain you most often hear concerns the vast psychological shifts.

With the average house here now worth about what it was in 2005, many people are understandably traumatized about its new value and cannot bear to put it on the market. “Psychologically,” says Bjork, “most of us put the value of our house at where it was when it was at its peak.”

Reality check: The median house price two years ago was $2 million. In 2009 it dropped to $1.69 million, a number brought down by the calamities of December 2008–January 2009. Oftentimes, sellers found it hard to absorb even an unbiased appraisal. Peter Grabel of Luxury Mortgage says: “We were frequently having issues where the appraisal came in at less than the purchase price, which is a psychological issue and it also affects financing. People are ready to sell and then they see the appraiser’s price and they get cold feet. It’s going to take sometime to get people out of it.”

These cold feet gave rise to the new phenomenon of “the accidental landlord.” Unwilling to sell their house cheap (or worse, unable to pay the mortgage), many owners decided to rent the house and wait out the bad spell. The number of houses available for rent went up 250 percent.

People, however, are now getting more realistic, says Barbara Zaccagnini of Coldwell Banker: “In the beginning, people thought it’ll turn around in the spring and I’ll get more money. But after two years people are realizing, ‘It might never get back so if I want to sell, this is what I need to do.’ ”

This new attitude has calmed the waters and brought back the entry-level buyers, for instance, who had been scared away by the prospect of putting 20 percent down and then losing all equity in two years. Realtors are reporting the growing sense among buyers that we’ve hit the bottom and it’s safe to buy again.

In this new world, many of the house-flippers have left the premises, taking with them the big chunk of money that once inflamed the market. Builders and investors have stopped throwing up spec houses, but that might change next summer as the general inventory level starts to come down.

In brief, an old-fashioned sanity has come to prevail again. “People don’t want to lose money on a house,” says Bjork, “but they’re not looking at it as a performing asset as they would a stock or a bond. For a while that was what everyone was thinking, but now it’s back to quality-of-life issues.

The Out-of-TownersOne factor that’s helping to stabilize the local market is that suddenly Greenwich doesn’t look so bad to a lot of out-of-towners. Of course, Greenwich has long been attractive to overseas investors, but now it’s the folks from up the road.

“One of the trends I see is people moving here from other towns in Fairfield county—New Canaan or Westport,” Bjork says. “Maybe Greenwich was once their first choice but they found their money went further up the line. Now they’re perceiving this dip as an opportunity to get into Greenwich.”

“We’re starting to see more buyers from New York,” says Renee Gallagher of Round Hill Partners. “People are surprised—they never thought they could afford Greenwich and now they can.”

Among the disenchanted New Yorkers tumbling into our laps are people escaping Manhattan’s troubled condo market. With many banks reluctant to finance more than 60 percent of a New York condo, folks blanch at the prospect of coming up with $1.2 million cash to buy a $3 million condo.

What’s really driving customers into Connecticut is, of course, the surreal state of New York taxes. Local banks have been reporting a big increase in borrowers from Westchester, particularly Scarsdale, where a $3 million house might be taxed to the tune of $75,000 a year. In Greenwich that same home would be taxed $15,000 annually.

“The market in Greenwich is typically 50 percent in-town buyers and 50 percent out-of-town buyers,” says Ogilvy. This situation will always stabilize the market somewhat, even as Greenwich home values now surpass all but two cities in the United States, according to Coldwell Banker’s annual list. (Our only rivals are two California cities, La Jolla and Beverly Hills.) Still, the high end has been sobered up plenty. In 2008, the biggest sale here was for $30 million. Last year it was $22.5 million.

Among the showpieces, Leona Helmsley’s spectacular Dunnellen Hall was put on the market in 2008 at $125 million; the price has since been nearly halved. The other showpiece of note, Mel Gibson’s Old Mill Farm, a grand Tudor sitting on seventy-seven acres of Round Hill land, has dropped from $39 million to $29.5 million. Gibson had, by the way, paid $9.2 million for it in 1994, which just illustrates what brokers always like to say here: If you’re in it for the long haul, you’ll prosper in Greenwich.

As for the supermansion being built by Russian billionaire Valery Kogan, well, the local contractors are sure happy about it. But for those of us who aren’t mysterious Russian financiers, getting into the big Greenwich estate appears to be more possible than it was. Some banks were requiring 30 or 40 percent down on a $10 million house, but that might be changing.

According to David Adamo of Luxury Mortgage, in 2006 there was about $500 billion available in the jumbo loan market. In two years that shrank to $100 billion — and the consequences are still being felt. The default rate on jumbo loans is currently 9.6 percent, so the ripple effects are still emphatically rippling.

The positive numbers that have gone up since the beginning of the year reflect the new financial opportunities. “Here in Greenwich,” says Grabel, “the jumbo and the superjumbo market is opening up. More aggressive product at more aggressive rates have opened up in the past few months, and that’s helped fuel the purchase activity. We can now get 85 percent on jumbo loans. There was a time we couldn’t get more than 80 percent.”

WANT VS. NEED“People say this is going to happen again in the future,” says Russ Pruner of Shore and Country Properties, “but I don’t think it will be in the near future. Banks are going to be very prudent about who they lend to.”

He appreciates the new sense of realism that has infiltrated the minds of the house shoppers. When asked what customers now want, Pruner says: “There are no wants anymore—it’s only needs. People are saying, ‘Why do I need the 12,000-square-foot house? Why do I need a gym, a wine cellar, a media room?’ There are still a lot of people who can afford that, but people are becoming more conservative in their lifestyle. As people send their kids off to college, they’re willing to downsize even faster now. People are buying what they need and not what they want.”

David Ogilvy, who has sold his share of $10 million houses, occasionally for cash, begs to differ. “People want what they want,” he says.

But Pruner is adamant. “The psychology has changed. People who once wanted to show their wealth are now keeping it closer to the vest. They’re being less showy about the house they buy, the cars they drive. Because we as baby boomers hadn’t been through something as drastic as this in the past.”

Indeed, someone raised in the good times of the Reagan and Clinton years has no appreciable memory of how hopeless the American economy felt during the hyperinflation era between 1979 and 1981.

But, as Congressman Jim Himes points out, what always seems to sustain us is our basic American confidence. “We don’t talk about it much,” Himes says, “but one of the causes of the real-estate bubble, and the Internet bubble, is an ingrained sense of American optimism. ‘My home will be worth more next year than it is this year, regardless.’ There’s an ingrained sense of optimism, which is wonderful, but it also probably causes us to be less skeptical about the financial world than we should be.”

In our often theatrical housing market, there’s nothing quite like two years of profound sobriety to bring about a new sense of order.